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A Lost Litigation Opportunity

While the so-called ‘hot gas’ issue has been discussed here several times before, there are new developments out in California that have Oil Watchdog and the $295/hr lawyer behind this ‘consumer organization’ crying over lost litigation opportunities. Given the time, effort, and money they have put into this issue, the events described in this essay are quite a blow for them.

At least they will now have more time to devote to their other campaigns, such as 1). Stopping oil companies from donating money to universities; and 2). Berating oil companies for not giving enough to universities. (They make more sense if you view them as a satirical site along the lines of The Onion. The only problem is that Oil Watchdog is trying to be serious). I think it is particularly curious that the press uncritically accept and quote those associated with Oil Watchdog as consumer advocates trying to do the right thing by consumers, when a cursory investigation would show what they are (hypocritically) up to.

First, here are a few of the links to previous discussions of the issue:


Hot Gas Lawsuit in Utah

More on Hot Gas Lawsuit

Hot Gas Issue Heating Up

Hot Gas is a Bunch of Hot Air

In a nutshell, the issue is that gas expands when the temperature is warm, and so a gallon of ‘hot’ gas has less energy than a gallon of cooler gas. This means you aren’t getting the same amount of energy from your gasoline that is hot, therefore “you are being ripped off.”

This is the kind of issue that an organization like Oil Watchdog was built for. They can hype up the controversy, get outraged people to send them donations (after all, who is going to protect the little guy from Big Oil if not them?), and try to get some litigation going to benefit people like the professional litigator who is behind the site. His own website says that he “has focused on suing insurance companies that overcharge or mistreat consumers, in violation of state laws; cell phone companies for billing mistakes and poor service; and HMOs and health care companies for providing shoddy health care and refusing to pay people’s claims.” Just imagine the potential windfall if he can get a class action going by convincing enough people that deep-pocketed Big Oil is overcharging and mistreating them. That would certainly earn him more money than 99.99% of the “greedy” people in the oil industry.

Oil Watchdog – a spin-off of the Foundation for Taxpayer and Consumer Rights (see this story for the dirt on why they do what they do and evidence of who is behind the site) – has fought to force installation of temperature compensating equipment so that the gallon is corrected for temperature. That means when the gas is warm, you get a little more than a gallon, but when the gas is cold you get less. So what’s wrong with that? Basically, as I discussed at the links above, it belies a real misunderstanding of just what the outcome would be.

Imagine for a moment that you redefine a gallon so that the new volume is now equivalent to 1.5 of the old gallons. Do you think the price for a gallon of gasoline would stay the same? Of course it wouldn’t. You would pay 1.5 times as much for it. This is what Oil Watchdog and others pushing for this legislation could never absorb: It wasn’t going to work as they claimed, because as soon as the size of the gallon changes (which is what temperature compensation does), the price will change. You would probably find more variation in energy content just based on how the gasoline is blended. (Imagine how outraged they will be when they finally figure out that ethanol is contributing to gasoline with lower energy density, or that energy density varies between summer and winter.)

Oil Watchdog has really been on top of this issue, issuing press release after press release to make sure everyone knew how badly consumers were getting ripped off. Yet despite all that effort, the California Energy Commission has ruled against them:

Commission says fixing ‘hot fuel’ would drive up fuel prices

This is of course what I have been saying since this issue first cropped up. From the article:

The California Energy Commission says forcing retailers to install temperature-compensation devices on fuel pumps would drive up the price.

Officials with the Owner-Operator Independent Drivers Association challenge that claim, saying a one-time investment by fuel companies is part of doing business and would save consumers money in the long run.

During a business meeting Wednesday, March 11, the California Energy Commission recommended against forcing retailers to implement automatic temperature compensation, or ATC, at the pump.

Retail fuel is currently sold as a 231-cubic-inch gallon and does not take temperature into account. Elementary physics shows that all liquids expand and contract with temperature changes.

State and federal law does not require fuel retailers to compensate for temperature, but consumer groups and some lawmakers are trying to change that.

Directed by state law AB868, the California Energy Commission studied fuel temperature and evaluated the cost of implementing ATC at retail pumps.

“If retail station owners and operators continue (are) to grow and remain profitable, then retail station owners will most likely raise their fuel prices to compensate for selling fewer ‘gallons,’” commissioners wrote in the report. “If this is the case, then expected benefits for retail motorists will be essentially zero.”

Oil Watchdog of course wasn’t going to take that lying down, so they have issued a series of press releases charging conflicts of interest and anything else they think will stick (and draw attention away from all of their donors’ money they wasted on this). Here was their latest press release on the issue:

Documents Show Political Appointees Interfered With Cal. Energy Commission Study Of Hot Fuel Ripoff To Protect Oil Companies

Personally, I think that’s too subtle, but what do I know? I am not an ace journalist like the staff at Oil Watchdog.

As I have documented previously, Oil Watchdog started censoring comments following their stories because people were consistently demolishing their claims. Some of the comments are very good, though. So below I have copied one of those comments that Oil Watchdog conveniently put out of sight by default (and you will see why they started doing that). This is a typical sort of blistering rebuttal they often receive following some of their hysterical “essays”, which finally resulted in them frequently labeling those who disagree with them as “Shills for Big Oil.” What else were they going to do, debate the technical merits?

It is a bit long, but a highly entertaining example of what happens when an organization completely devoid of any technical people on their staff pumps out the misinformation they do. As the poster below points out, there seems to be no due diligence at all, but the reason for that becomes clear when one understands their actual objectives.

———————-

Oil Watchdog presents the hot fuel issue as one hoisted on the public by Big Oil. Without defining Big Oil, we have to assume she [Judy Dugan] means large refiners and integrateds, as opposed to retailers. Let’s examine the facts in this case, instead of the anecdotes.

The claim is that an annual $400,000,000 in excess revenue is generated dishonestly in California. As Oil Watchdog is clearly biased in this case (they are after all paid to criticize the oil industry), we can safely assume that this figure is probably at the very highest end of the impact spectrum. But let’s take it anyway, and break the figure down and see, to a reasonable approximation, just who is getting what from hot fuel. By the way, I’ll state here that the more accurately fuel can be dispensed, the better for consumers. But the real issue is, not what is the best technical solution, but whether consumers would benefit from ATC. Oil Watchdog sweeps the latter point under the rug and presents ATC purely as a morality play.

The simple analysis goes as follows:

$400,000,000: Oil Watchdog’s claimed ripoff. This is in the form of revenue to the retailers.

10% profit margin: we are here mixing refiners and integrateds, so it’s not a bad approximation. But we’ll reach the same conclusion below with any reasonable range of profitability assumptions.

$40,000,000: hot fuel profit to the industry.

Who is getting this? We know it only applies to the retail level (as Dugan has reported herself) since refiners sell their fuels corrected for temperature.

Here are the market shares of California refiners, as reported by the state of California:

Company CA Market Share, Gasoline
BP 19%
Chevron 19%
Valero 13%
ConocoPhillips 12%
Tesoro 11%
Shell 10%
ExxonMobil 6%
Big West 2%
Kern 1%
New West 1%
Petro-Diamond 1%
Tower Energy 1%
IPC 1%
Others 3%

In terms of industry concentration, this market does not look particularly concentrated when compared to other critical industries, such as automobiles, computers, or tires. So the case for conspiracy is weak on the basis of market share alone. At the level of the state of California, the Herfindahl Index for refining would be about 1300, well below the 1800 that might start getting attention at the Department of Justice. In fact, the DOJ considers industries in the range of 1000 to 1800 as being only “moderately concentrated.”

We now want to take the $40,000,000 hot fuel profit derived above, and allocate it to the state’s refiners. But first, as Dugan knows and has reported, we know that Big Oil has largely exited the retail sales business. In fact, she has quoted the widely published fact that about 97% of retail sales go to retailers, and not to Big Oil. So we need to allocate 3% of the $40,000,000, or $1,200,000, to Big Oil refiners by market share. When we do that we get the table below (here showing Big Oil shares).

Company Share of Hot Fuel Profit
BP $228,000
Chevron $228,000
ConocoPhillips $144,000
Shell $120,000
ExxonMobil $72,000
Combined Retailers $38,800,000

Clearly, the benefit to Big Oil, by Dugan’s own figures, of hot fuel in California would not even cover the cost of a lawyer for each company. In short, Big Oil could really care less about hot fuel in terms of impact to the bottom line. ExxonMobil’s hot fuel take in California represented about 0.00018% of its total profit. It probably spends many times that on landscaping or office water coolers.

And just as clearly, we see that the retailers should have a vested interest in the outcome. But when you consider that there are about 12,000 gas stations in California, you find that

$38,800,000/12,000 = about $3200 annual hot fuel profit per gas station.

In other words, the average California station doesn’t appear to be getting a huge jolt from this either. I think we can safely assume that this is not a profit grab by Big Oil, or even the retailers: the retailer opposition is probably based more on avoidance of ATC costs and maintenance.

But the really interesting point to be made here is that on the one hand Oil Watchdog charges this group of retailers with fraud, but on the other hand claims that the retailers will now absorb the cost of the equipment and maintenance, to the benefit of consumers. What if Oil Watchdog is wrong, and the consumers end up behind in the long run? This strong possibility is essentially ignored. For reference, the average consumer, if he drives 15,000 miles per year and gets 20 mpg, is paying a little under $19 per year on hot fuel (based on the $400,000,000 divided by gallons sold in California, or 2.6 cents per gallon). What if the retailers pass along an average of 4 cents per gallon? Why not? Aren’t they conspiring to rip us off now anyway? After all, each retailer will know that his competitors are facing the same new expense. The whole episode would probably be a futile exercise in money laundering in which no one benefits. This is one of the reasons why the American Trucking Associations, the nation’s spokesman for the trucking industry, opposes ATC. Any charge that the ATA has a vested interest in higher fuel prices is not credible.

If the potential buyer of Judy Dugan’s $5000 used car finds a defect in the engine (perhaps a microscopic hole in a piston) that might cost him 8 extra gallons of gas per year (near our $19 hot fuel cost), and Dugan learns it will cost $500 to replace the piston, will it be a good thing for the buyer if she does that and charges him $5500? Dugan is, after all, selling a car which she knows has a hidden foot on the gas pedal. Or would she just negotiate a new price and let the market make the correction? Isn’t that in fact what retailers are doing? As the market shares above show, and as recent steeply falling gasoline prices have proven, the industry is competitive. Unless they conspire, it would seem that no one retailer could make incremental profit off hot fuel as long as a competitor somewhere was willing to cut into that profit to gain market share. The market will equilibrate to a rate of return acceptable to competing retailers. Introduce a retail cost perturbation into the system, as in ATC, and prices will tend to adjust to maintain that equilibrium margin, unless one believes that the retailers will now stop ripping us off and simply accept lower incomes.

One gets the sense that Oil Watchdog does not understand the concept of cost-benefit analysis, and instead subscribes to the simple belief that anything bad for the oil industry must be good for consumers. The representation of hot fuel as a willful fraud perpetrated by Big Oil, when Oil Watchdog has acknowledged that refiners deliver temperature corrected fuel to retailers, is negligent and cynical…. or just plain dishonest. There is an underlying perception that this issue is one of self-interest for Oil Watchdog, a feather in their cap so to speak, or perhaps justification for existence in a world where the recent steep drop in prices prove that oil companies cannot set those prices, thus muting many of Oil Watchdog’s past charges. The rug being pulled from under its feet, Oil Watchdog needs a new pretext for its sources of funding.

Now, Oil Watchdog may in fact be correct on this issue. There is a lot of uncertainty in the data and therefore conclusions on hot fuel cost estimates, and future market responses to ATC installation cannot be predicted with certainty. But they make no credible case, and reasonable calculations based on their own numbers raise legitimate doubts as to who really benefits. Unfortunately, instead of pursuing an impartial quantitative analysis, they turn ATC into a witch hunt and go after the usual suspects. Their motivation appears above all else to be giving the oil industry a black eye; consumer benefit is assumed, and not investigated. The possibility that they could be wrong, and therefore that they could be hurting consumers, takes a back seat. There does not appear to be any due diligence on Oil Watchdog’s part to demonstrate that their position on ATC would result in a net benefit to consumers.

March 18, 2009 Posted by | California, FTCR, gasoline, Judy Dugan, litigation, oil watchdog | 43 Comments

Oil Watchdog on Fuel from Algae

I have gotten out of the habit of visiting Oil Watchdog whenever I want a bit of energy-themed comic relief. They are so ‘over the top’ and transparent that it really hasn’t been necessary to debunk them. As I have documented before, on the one hand they accuse oil companies of not supporting alternative energy or donating any of their profits. Yet where oil companies are funding alternative energy and donating to colleges, they are accused of ‘greenwashing’ and attempting to control university research. You can see some of the articles I have written documenting their intellectual dishonesty and inconsistent ‘reporting’ here. As you can see, they will even take a rumor (“I absolutely can’t vouch for the truth of this story…”) and attempt to spread it.

While it has been six months since I have been there, I thought I would check in to see what kind of negative spin they would put on falling gas prices. I was expecting “it’s an attempt to control the election”, which seems to be a common theme during election years (even though the price also falls in non-election years). Instead, Judy Dugan was again proudly putting her ignorance on display:

Show us your algae!

I was reading up today on research about turning pond scum into biodiesel. One promising thread is that algae can be fed the carbon dioxide emitted by power plants, multiplying their oil production on a waste greenhouse gas. Algae may also thrive on ground garbage. It’s a concept that needs intensive, expensive research to prove if algae are an energy savior, a false promise, or something in between. Then I came across a paragraph in a Science Daily article from a few days ago that stopped me cold:

This was ‘above the fold.’ Below the fold, I knew without even looking what kind of story it must have been to stop Dugan cold. She had obviously made the shocking discovery that oil companies are involved in this research!

“Some of these pragmatic issues may have been tackled already by the various private companies, including oil industry giants Chevron and Shell, which are already researching algae fuel, but a published scientific report on these fundamentals will be a major benefit to other researchers looking into algae biofuel.”

Uh-oh! Time to put on the ‘Big Oil is greenwashing and trying to control our energy supplies’ hat:

If Big Oil is doing this research and keeping even interim results to itself, we can’t trust oil companies with anything surrounding our desperate need for a better energy future.

It’s the same reason that universities shouldn’t be taking big bucks from oil companies in return for letting the companies shroud research results in delay, secrecy and proprietary rights.

So, Dugan wants 1). Oil companies taxed into submission (previous posts); 2). Oil companies to put some of their ‘ill-gotten gains’ into research on new energy supplies; 3). But if they do, she wants the results to be publicly available to all. Now, remind me again what the incentive would be for a publicly traded company to do this research if there was no profit to be gained? And wouldn’t other companies – and other countries for that matter – love to sit back and reap the rewards of Chevron’s research?

Here Dugan puts her ignorance up on a pedestal:

But if Chevron is funding the research, it will control the result and can just as easily bury it, calling the effort a disappointing failure.

I don’t guess Dugan is aware of the U.S. DOE Aquatic Species Program. You can read the 328 page close-out report here. You can also read a guest post from John Benemann, the man who co-authored that report:

Algal Biodiesel: Fact or Fiction?

You see Dugan, despite the ignorance that you seem to wear like a badge of honor, the oil companies don’t have a monopoly in this area. The US government studied it for many years, but concluded in their close-out report that costs were too high, and many technical challenges remain. So if Chevron does decide to shelve it, I am sure that you will conclude that they were ‘burying it’ (after all, you are programmed to put the negative spin on). And in my opinion, they will eventually shelve it, for the very reasons that were laid out in the close-out report.

Despite that, Greenfuel Technologies (not an oil company, Dugan) has been making some pretty big claims in this area (claims that violate thermodynamics, according to Krassen Dimitrov). And because there is so much misinformation around the subject of algal fuels, it isn’t surprising that a massive fraud has already been perpetrated on gullible investors. Sorry, Dugan, no oil companies to blame on that one. But if you know a little about the history of the algal biodiesel program, you could have smelled that fraud coming from a mile away.

August 24, 2008 Posted by | algal biodiesel, Chevron, FTCR, Judy Dugan, oil watchdog, Shell | 31 Comments

Stranger Than Fiction

After 24 hours of traveling, including a cancelled flight, lost luggage, and a passenger’s medical emergency that almost forced us to land in Greenland, I am back in the Netherlands. I almost never check luggage, and I got a very valuable reminder why today: United Airlines has no idea where my luggage is. Thanks, guys – especially for asking me to stand in a line behind 400 people after you cancelled a pair of full flights in quick succession. As I overheard one lady ask, “How can you call it customer service if you can’t service your customers?” But I digress…

Had the following been in the plot of James Kunstler’s recent book, World Made by Hand (reviewed here), I would have dismissed it as absurb. Yet here it is, a story that is uniquely American:

Tired of paying through the nose, Americans try praying at the pump

“Lord, come down in a mighty way and strengthen us so that we can bring down these high gas prices,” Twyman said to a chorus of “amens”.

“Prayer is the answer to every problem in life… We call on God to intervene in the lives of the selfish, greedy people who are keeping these prices high,” Twyman said on the gas station forecourt in a neighborhood of Washington that, like many of its residents, has seen better days

At the Shell station, Twyman had dire words of warning for those who are raking in profits from high gas prices. “Woe be unto those people that are really greedy and taking advantage of American families,” he proclaimed from his pump pulpit.

“These prices will come down, just like the walls of Jericho came down in the Bible,” he said, as another chorus of amens punctuated the sound of cash flowing out of the gas pumps.

Something tells me that these people would have struggled mightily in an Old Testament setting, where Job was losing everything he had in a test of character, and plagues of locusts were regularly descending on the crops. No, these pansies are praying for God to “intervene in the lives of the selfish, greedy people who are keeping these prices high.” How about praying for the strength to restructure your life in the face of higher gas prices? How about praying for the strength to reduce your energy usage? No, easier to smite the “enemy” who is causing you to pay $4 a gallon, about 50% of what gas costs in the Netherlands.

Check out the story. Judy Dugan from the Oil Watchdog crew even makes an appearance. It would be a funny story, except it’s true. That makes it pretty sad.

May 5, 2008 Posted by | gas prices, Judy Dugan, oil watchdog | 10 Comments

Due to Censorship at Huffington Post….

I had posted a response to Judy Dugan’s latest hysterics at Huffington Post, but it has been “pending moderation” for 4 days now. I suppose because I didn’t violate any of the rules that would cause it not to be posted, but I challenged Dugan’s competency, they figured they would just hold it until the story got stale. Huffington Post simply censored me the last time I tried to respond to one of Dugan’s screed (and so far they are doing it again). Below is exactly what I tried to post. It is milder than her initial story.

So, here is my response, followed by one from “armchair” over at Dugan’s Oil Watchdog site on the same story. You have to “unhide” the comments to see that one since they went to de facto censorship on all comments.

This post of Dugan’s is full of inconsistencies. Open up a blog post with a complaint that an editorial was partially based on a blog post. Then go right into an ad hominem by characterizing the source as “hard-right.” Nice journalism. Then, misrepresent the editorial ” “we must offer gratitude instead of criticizing” when in fact it implied no such thing. What it did attempt to do was set the record straight with people such as yourself who have no concept of economics ” and point out just how much the oil industry adds to federal coffers via taxes each year. The final irony was to suggest that Perry’s post was mean-spirited. And yours was…?

Furthermore, what is your deal with stock buybacks? If a CEO feels a company’s stock is undervalued, and the returns from buying back the stock are expected to be higher than additional capital investments (which are already in the multi-billion dollar per year range, as are oil company investments into alternative energy), then I expect that CEO to buy back stock. So what if it doesn’t increase dividends? Do you think investors are unhappy that dividends didn’t increase, when the stock value did because of the buybacks? Nonsense! Stock buybacks are a perfectly legitimate way of increasing the value of remaining shares ” if those shares are deemed to be undervalued.

Finally, don’t take this as a blanket defense of ExxonMobil. It isn’t. I can count on 1 hand the number of times I have bought their gasoline since the Exxon Valdez oil spill, and that’s only when I didn’t feel I could make it to another station. But someone needs to address this misinformation you persistently churn out. I get the feeling that if oil companies are funding schools for orphans, you will have something negative to say about that (just as you have over oil company investments into alternative energy).

Robert Rapier

And now “armchair”:

The $30 billion in taxes can also be viewed as about 7% of Exxon’s total revenue, $405 billion.

Discussing a tax rate in terms of revenue is a meaningless concept. But it sounds good to potential donors, and Dugan has just sent out emails soliciting donations.

Prof. Perry notes that over three years, Exxon’s annual taxes average $27 million.

Exxon paid $69 billion in taxes in 2006 alone. It’s in their annual report.

Here’s what Perry, much less the IBD editorial, forgets to mention about those taxpayers:

Here’s what Dugan fails to mention about Exxon:

– It employs about 106,000 people. It pays 50% of their social security taxes. It pays for their medical insurance.

– Those employees pay taxes on their Exxon salaries.

Additionally, the foundation for all of her criticism must be that Exxon is responsible for high oil prices. She has forgotten to provide even a shred of credible evidence for her claims. That a company with a 3% market share can control anything defies common sense.

– None of these low-income Americans’ taxes went to Kazakhstan, Chad, Nigeria or other corrupt nations with which Exxon does business.

I am in a state of confusion over this point Dugan keeps making. The countries she mentions produce about 5 million barrels of oil per day, and if we add the “others” (she’ll make the call) then there’s a lot more. Does she want to pull that oil from the market? A few months ago she severely criticized the US Secretary of Energy for putting a few tens of thousands of barrels in the US strategic reserve. I’m going to assume she wants that “corrupt oil” to remain on the market, and therefore is happy for those revenues to go to those governments. I guess Dugan feels her conscience is cleared by publicly placing the ethical burden on the middleman who brings that oil to her and other consumers.

But you’re part of the system, Judy Dugan, so such a position is not very clever. You benefit from those 5 million barrels, whether Exxon produces it or someone else does. Unfortunately, oil that you use is not always found in places you find convenient or politically correct. We as a society have to make choices and accept consequences. What is your choice? Produce the oil, or not? What are the consequences?

– None of these little taxpayers shared in the billions of federal government subsidies to oil companies that their taxes also helped fund.

Obviously Dugan does not understand the concept of the marginal investment and the nature of subsidies. It’s not worth explaining here.

Over the last three years, Exxon has spent an average of at least $25 billion a year on buying back its own stock instead of investing in growth or modernization. The buybacks are a corporate piggy-bank with little or no economic use except for keeping the stock price high. It doesn’t even boost dividends.

Do you think maybe it makes their stock look more attractive, and has the result of decreasing their cost of capital? Do you think they would buy back all of that stock if they had more profitable opportunities to invest the money in? This comment shows a very fundamental lack of understanding of the oil industry’s business environment, particularly the upstream business.

Exxon’s daily cash on hand in 2007 averaged $33 billion. Yet it continues to resist paying $2.5 billion in punitive damages to Alaskans permanently harmed by the negligent Exxon Valdez oil spill in 1989. Imagine what Exxon’s lawyers are being paid, year after year, on this case.

So you have aready decided they are guilty, even though the case is still ongoing. Why don’t you call the judge and save everyone some time and money? Exxon should just pay, because they have a lot of money. Good point.

And, just to compare to those $14,000-a-year folks, some of whom are probably Exxon employees, Exxon’s 2006 compensation to CEO Rex Tillerson included $13 million in direct payment, another $13.5 million in stock grants, and $480,000 in perks including $100,000 for “personal use” of the corporate jet. That doesn’t include his right to more than $20 million any time he decides to “retire.”

Oil industry CEO compensation is about the same on average as for US CEO’s across all industries. You can look it up. I’ve done so, but will spare you the graph. His salary probably pales next to lots of Hollywood types and athletes. But we’re all OK with that, aren’t we?

Dugan is starting to bore me at this point, though. There really isn’t any sport in this.

February 19, 2008 Posted by | huffington post, Judy Dugan, oil watchdog | 405 Comments

Consumers Boil

This is quite timely coming on the heels of my previous essay. I talked about the press picking up and running with the comments of Oil Watchdog’s Judy Dugan as if she were actually a credible source of information. Here’s a perfect example:

Consumers boil over oil profits

For years, oil companies have been cast as villains. That perception didn’t change Friday when the two largest U.S. oil companies reported record profits — again.

Let me first say that I certainly understand why consumers are upset. I remember when I was younger and commuting a long distance, every increase in gas prices really hurt. If oil companies were reporting record profits at the same time I was paying record amounts for gasoline, I would have been angry as well.

Last year, Exxon Mobil reaped more money than any U.S. corporation has ever made, while consumers were sliding into a recession, said Judy Dugan, research director for the Foundation for Taxpayer and Consumer Rights in Santa Monica. At the same time, oil companies have lobbied against any control of the market that has pushed crude oil to $90 and up, she said.

“Their product is so important to our economy that energy costs alone are driving inflation and raising consumer debt,” Dugan said.

I am really curious as to how Dugan thinks the market can be controlled. When OPEC controls 40% of it, and the ExxonMobil’s of the world control less than 10%, it is really hard to grasp how Dugan thinks the oil companies are controlling this market. What does she think governments should do? But, it has become obvious to me that you don’t have to grasp the issues in order to be a self-proclaimed watchdog.

Dennis Clancy of Thousand Oaks has been unhappy with oil companies. “I’ve always had a problem with gas prices over $3,” he said while filling up at a Shell station in Camarillo. “It shouldn’t cost over $50 to fill up a midsize car.”

He wants to see more proof about how the oil companies’ profits are utilized, as well as less dependency on foreign oil.

Do you really want to see less dependency on foreign oil? Then embrace higher prices, which will get Americans to drive less and buy more fuel efficient cars. Downsize that midsize car. Don’t put yourself in the position where you demand a lot of gasoline, and then get made at the oil companies when the price goes up. Take matters into your own hands and reduce your own dependence, if you expect the country as a whole to reduce dependence.

Oil companies blame energy markets for high crude prices, but they profit immensely from these markets and oppose controlling them, Dugan said.

“The government has to get some control over these unregulated electronic energy trading markets,” she said.

Oil companies are spending billions of dollars buying back their own stock instead of investing in renewable energy or their own refineries, which, Dugan says, is the very definition of greed without regard for corporate responsibility.

More hysterics and fabrications from Dugan. Are oil companies buying back stock? Sure, I would be as well if I felt my stock was undervalued. But that doesn’t mean they aren’t investing back into their business. Oil companies have spent far more money expanding refineries and upgrading to meet ever tighter environmental regulations (like ultra-low sulfur product specs). Dugan’s comments are the very definition of reporting without regard for journalistic integrity.

“I’m still almost speechless at the amount of profit they made,” Dugan said. “Americans should be furious.”

We can all wish. Fortunately, there was some sanity injected near the end of the article:

The oil companies have always been “the bad guy,” but perhaps they don’t deserve the label, said Jack Kyser, chief economist of the Los Angeles County Economic Development Corp. “People don’t understand the world has changed for oil companies,” he said.

It’s becoming more expensive and difficult to find oil fields, and oil companies are trying to explore in nations where real danger or politics are involved, Kyser said. Consumers feel the pain at the pump and don’t think about the kind of infrastructure that oil companies have to build to access the oil, or the political risks.

“In a way, they’re becoming a declining industry,” Kyser said, adding that seems contrary to the companies’ financial growth. But, he said, he believes that their position as the world’s major players has changed. “It’s a whole different ball game. They don’t have the clout they used to have,” Kyser said. “They can’t go into a country and sign contracts and expect stability anymore.”

While oil companies have been accused of price gouging, Kyser said, he believes they’re simply trying to protect themselves for tough times ahead. “Everyone acts like it’s blue skies for them, but if you look over the history of the industry, they’ve had some very lean times,” he said.

This is more or less the way I see it as well. The risks have gone up dramatically for oil companies, as those operating in Venezuela found out last year. If oil prices were to unexpectedly crash, I suspect the climate would become friendlier as governments wouldn’t want to assume the risks for projects.

That’s why Venezuela invited oil companies in to start with: Prices were low, the risks were high, and the projects were expensive. So, oil companies were invited in, and contracts were signed. Then, as soon as prices shot up, Venezuela cancelled contracts and seized control. This is the world oil companies must operate in now; it’s very high risk. The Judy Dugan’s of the world would like to see oil companies take the risks, but not be rewarded when markets bid up the price of oil.

February 6, 2008 Posted by | ExxonMobil, FTCR, Judy Dugan, oil watchdog, Venezuela | 352 Comments

The Intellectual Dishonesty of a "Consumer Watchdog"

I am having an internal debate with myself regarding which aspect Oil Watchdog I find most annoying: Their intellectual dishonesty, their reprehensible tactics, or just their plain old-fashioned stupidity. I can give lots of examples of each, but I really think it’s their dishonesty that bothers me the most. When a “consumer watchdog” stoops repeatedly to dishonesty and distortions to sell their story, it calls into question their true motivation. And when the press picks up these distortions and reports them as news, the credibility of the reporting organizations is damaged (as it should be when they don’t do their homework).

We see the tactics of Judy Dugan and her cronies all the time with politicians: One distorts the record of another, because they must win that election. Say and do whatever it takes, just get those votes. We have come to expect this from politicians. But why does Oil Watchdog employ the same kind of dishonest smear tactics? What is behind their lies, distortions, and just plain clueless statements? Let’s investigate some examples:

Reprehensible Tactics

For someone who constantly accuses Big Oil of misdeeds, Judy Dugan lives in one of the most fragile glass houses I have ever seen. Take a recent story:

Big Oil’s Big Bribes?

She starts out:

I absolutely can’t vouch for the truth of this story,

You know there’s a “but” coming. She doesn’t know if there is any truth to the story, but she’s going to repeat the smear anyway because it makes oil companies look bad:

…but it’s no wonder that people would believe it. A Bahraini publication claims that oil companies are offering Iraqi legislators $5 million each to vote for the Iraqi oil law, which would give the oil companies control of Iraq’s huge untapped oil reserves. Five million a head to a few dozen key “legislators” would be pocket lint out of this year’s record oil profits, wouldn’t it? It would probably be less than Chevron shelled out last year to sponsor Iraq”s commercial oil summit. And it would at least be more direct than the lobbying that Big Oil does in Congress, or its exclusive entree to the White House.

So there we have it. Judy Dugan – one time journalist for the Los Angeles Times and United Press International, reduced to spreading rumors. She has certainly fallen a long way.

Someone challenged her in the comments (which as I have previously reported, they now hide by default since not too many were in their favor):

Dugan should be ashamed of herself for spreading rumors. US firms are bound by the Foreign Corrupt Practices Act. It is illegal and immoral to bribe officials. Besides, one could believe a small bribe, but $5 million each? Such a large some of money would be difficult if not impossible for a public company to hide from the auditors and shareholders.

This rumor doesn’t pass the smell test.

Indeed. Shame on you, Judy Dugan. You have a lot of nerve accusing anyone else of “misdeeds.”

Intellectual Dishonesty

Here is a prime example of the intellectual dishonesty of Oil Watchdog:

Congress Must Act On Energy Prices

Santa Monica, CA — A weekly national increase of more than a nickel a gallon for regular gasoline has motorists paying a “speculative bonus” to hedge fund traders and others who have kept the price of crude oil near $100 a barrel, said the Foundation for Taxpayer and Consumer Rights (FTCR). With pump prices up nationally to $3.109 from $3.054 over the past week, at a time of year when prices are historically at their lowest, spring is all but certain to bring new record prices.

I will get to the dishonesty in a moment. But consider the previous paragraph. Gasoline prices have lagged far behind oil prices, and refining margins have been very poor as a result. The price of gasoline went up by a nickel, and the FTCR felt the need to issue a press release. What is interesting is their actions since this January 7th press release. Gasoline prices have actually fallen every week since then, and the national average is down to $2.98 as of this writing. What would you expect a non-biased organization to do after gasoline prices fell for 4 weeks in a row? Since they issued a press release when gas prices climbed by a nickel, did they issue another when prices fell by three times that amount? Answer: No, they didn’t – their press releases are anything by non-biased.

Now, here’s the dishonest piece:

“While the speculation-driven price of oil could be blamed for $3.00 gasoline in January, $4.00 gasoline in May will again be laid at the door of oil companies and refiners,” said Dugan. “Oil companies refuse to expand or even modernize their refineries, then every spring they blame their self-caused shortage of gasoline for price spikes. The economic effect of a price spike from $3.00 to $4.00 would be far more serious than a spike from $1.99 to $2.50, which seemed outlandish only a few years ago.”

I have lost track with the number of people who have commented and corrected them each time they have claimed that oil companies have refused to expand their refineries. Yet Judy Dugan, who has probably never even set foot in a refinery, continues to spout this lie. In fact, “armchair261”, who has been labeled as “a suspected shill for BigOil” and whose comments there have been censored (and reports that he was finally banned) challenged Dugan’s claim:

Ms. Dugan says that “oil companies refuse to expand or even modernize their refineries.”

The figures below, from the Energy Information Administration, prove otherwise.

Note the drop in 2005 due to loss of capacity caused by Hurricane Katrina. By 2006, the oil industry had repaired much of that lost capacity and delivered a record volume of gasoline to the market. This does not sound like an industry that’s trying to maximize profits by reducing capacity. That figure was then exceeded in 2007, which saw the highest annual gasoline production on record.

http://tonto.eia.doe.gov/dnav/pet/hist/wgfrpus2w.htm

U.S. Annual Finished Motor Gasoline Production (Barrels)

2000: 2,993,802,000
2001: 3,011,960,000
2002: 3,058,104,000
2003: 3,083,493,000
2004: 3,220,735,000
2005: 3,152,527,000
2006: 3,227,532,000
2007: 3,279,465,000

Your comments, Ms. Dugan? In particular, could you address the recovery in refinery capacity and increased gasoline production immediately following Katrina? Refinery capacity grew from around 70% after the hurricane in late August to around 90% by the end of the year. This is not consistent with your claims in this article.

Thank you.

Stupid Press Releases

The integrated oil companies – specifically those that both produce oil and refine it – had a very good 4th quarter. The reason for that is specifically that world oil prices were very high in the 4th quarter. Refining margins were terrible, but the high price of oil was enough to offset weak margins. Shell had a good quarter, but they did come in short of estimates due to their poor refining margins. Naturally, Oil Watchdog weighed in with their typical uninformed opinion by making the following press release:

Shell’s Record Profit Is a Thumb In the Eye of Recession-Wracked Nation, Says Group

The first thing I noted was the story tags, which included “Cash Register Politics, Greed, Influence, Misdeeds, Price Gouging, and Profiteering.”

The story starts out in their typical hysterical style:

The record run of 2007 oil profits, which came as the U.S. economy slid into recession and consumer debt soared, portrays an industry run amok, said the Foundation for Taxpayer and Consumer Rights.

For those who don’t know, the Foundation for Taxpayer and Consumer Rights (FTCR) is the parent entity of Oil Watchdog. Continuing on:

While Shell may have slightly “missed analysts’ estimates,” it’s profit figures show that integrated oil companies continue to find ways to increase profits even as the economy falls. In Shell’s case, the company replaced the refining profits of recent years by escalating income from selling crude oil, often to their own refiners, said the nonprofit, nonpartisan FTCR.

Nonpartisan? In what way? Politically? They are certainly partisan when it comes to oil companies. They scream when oil and gas prices are rising, and then when prices are falling they just find something else in the oil industry to scream about. As shown above, they even stoop to spreading rumours to further their agenda.

And, they conclude with the need for more federal oversight:

FTCR has called for oversight of unregulated electronic energy trading markets and of oil company refining operations, including investment in new capacity and updating of aged, unreliable refineries.

One wonders what the point of that news release actually was. They left the implication that Shell was complicit in these high oil prices. They even tagged the article with “misdeeds.” The article blamed the housing collapse on higher energy prices. Thus, Shell is at fault and more regulation of refining operations is required? You read that release and it just looks like nothing more than a hatchet job by a political operative. No point, other than smear – plus a continued demonstration of ignorance for thinking that Big Oil controls the price of oil. OPEC controls about 40% of the world’s oil supply. ExxonMobil, the biggest of Big Oil controls 3%.

Summmary

Of course I could go on and on with examples like this. And I haven’t even mentioned Oil Watchdog’s multiple personalities: Complain about oil company greed, but if oil companies donate money, complain that they are “greenwashing” and trying to buy off universities. It is just incredibly ironic to me that a group staffed with former journalists would constantly accuse oil companies of misdeeds, when their own reporting misdeeds would get them fired pretty quickly from any reputable newspaper. Of course, we know who is paying the bills there, so rest assured that people like Judy Dugan – and apparently her ethics – are bought and paid for.

February 5, 2008 Posted by | FTCR, Jamie Court, Judy Dugan, oil watchdog, Shell | 121 Comments

I Want to be a Consumer Advocate

The job of “consumer advocate” has got to be one of the easiest jobs in the world. You don’t need any credentials, you don’t need to fact check, and you get to write your own press releases in which you liberally quote yourself as an authority. And the most important rule of all seems to be – Send out frequent, hysterical press releases so people will think you are relevant.

This latest release from the FTCR (which spawned Oil Watchdog) has got to be one of the most ill-informed pieces of tripe I have ever read. Does the press who decides to run this junk bother to critically analyze anything? Well, if they won’t, I will:

Foundation for Taxpayer and Consumer Rights: ConocoPhillips Rides Oil Prices to Record Earnings As Consumers Face Soaring Costs at the Gas Pump

SANTA MONICA, Calif., Jan. 23 /PRNewswire-USNewswire/ — ConocoPhillips reported a 37 percent increase in earnings, the best fourth quarter profits in its history, by benefiting from record crude oil prices at the expense of hard-pressed U.S. consumers facing soaring gasoline prices at the pump, consumer advocates said today.

The first of the Big Oil companies to report 2007 results, Conoco said income in the last quarter was $4.4 billion, or $2.71 per share, an increase from $3.2 billion or $1.91 a share in the comparable 2006 quarter.

That bit is accurate enough. The profits did come at the expense of consumers, as do all profits for all corporations. And oil prices are surely higher, and oil companies that produce oil benefit from that higher price. I don’t follow the fates of gold mining companies, but given record gold prices I suspect they had a pretty good year as well. That is the way it goes when one is producing a commodity.

Of course I should probably also point out that oil is a worldwide commodity, and the price is set on the world market. Furthermore, “Big Oil” pales in comparison to the national oil companies like Saudi Aramco. Those are the guys with pricing power. As big as ExxonMobil is, they control only 3% of the world’s oil.

These oil giants post obscene profits, regularly setting new records and then stick it to the consumer at the gas pump, said John M. Simpson, consumer advocate with the Foundation for Taxpayer and Consumer Rights. Then instead of using their gains to invest in research or to reduce outrageous prices, they simply buy back their stock.

Since Simpson authored this piece, one wonders whether he was interviewing himself. Maybe it’s just me, but I find it highly amusing when people speak of themselves in the 3rd person. But this is where he starts opining on matters in which he is out of his depth. I would first ask Mr. Simpson to define terms. What is an obscene profit? How much profit is deemed reasonable when a company’s capital budget is $15.3 billion for the year? And speaking of capital budgets, didn’t you just say that they don’t invest their gains, but instead simply buy back stock? It seems in your rush to react to the profit announcement, you either failed to check facts, or knowingly put out false information. The stock buybacks are a fraction of the annual capital budget. Is that responsible journalism, Mr. Simpson.

“A responsible company would accept equitable profits and reduce prices to consumers or perhaps take the long view and make substantial investments in research and development,” said Simpson.

And a responsible journalist would bother to correctly report facts instead of rushing out to slander corporations on behalf of their trial-lawyer backers.

January 24, 2008 Posted by | FTCR, john simpson, oil watchdog | 27 Comments

Who’s Watching Oil Watchdog?

NEWS RELEASE

November 14, 2007

“Consumer Advocacy” Group Under Investigation

Group Charged with Deceptive Journalism and Misrepresentation

Santa Monica, CA — Judy Dugan, Research Director for the Foundation for Taxpayer and Consumer Rights (FTCR), again finds herself defending against allegations of misconduct. Dugan is being investigated for consistent misleading press releases originating from the FTCR’s Oil Watchdog project. Oil Watchdog ostensibly exists to protect consumers from rising oil and gas prices. However, an investigation has revealed that the organization is actually funded by trial lawyers, and that the misleading information promoted by Dugan’s organizations is aimed at stirring anger toward corporate interests. Dugan, who could not be reached for comment on these allegations, clearly understands that angry consumers are litigious consumers.

Factual Errors

Dugan’s outlandish claims consistently undermine the credibility of both Oil Watchdog and FTCR. For instance, in a recent Oil Watchdog press release, Dugan claimed that “oil companies are reaping profits of up to $75 a barrel on $95-a-barrel oil.” Such a notion is preposterous, notes Dugan’s critics.

For Western firms, it can cost as little as $5 to $7 a barrel to pump the most easily accessible oil from places like Venezuela or Azerbaijan,” said Fadel Gheit, a senior energy analyst at Oppenheimer. “The costs don’t stop there. On top of the $5-$7 production costs, there’s also the money it took to build the pumping facility. At several billion dollars a pop, capital costs typically add another $5 to $7 a barrel. And that’s the cost of producing oil in the cheapest regions of the world. Factor in expensive fields like the deep water Gulf of Mexico, the tar sands of Canada or water-laden output of Texas, and the average production and capital cost is somewhere in the low teens to mid $20s,” said Gheit.

Still not bad, considering the selling price. Enter government. Gheit said taxes and royalty payments can range from 40 percent of profits in places like the United States to 90 percent or more in places like Russia or Libya. “It’s a very complex equation,” he said of trying to figure out just how much it costs oil companies to produce oil.

A very complex equation? Not according to Dugan, who assures readers that oil and gas prices are not dictated by market forces, but instead by the profit levels oil companies wish to make. Dugan claims that oil and gas prices are easily manipulated, and if there is an energy bill being debated or an upcoming election, oil companies simply drop prices in a direct attempt to hijack the political process.

Frequent Dugan critic Robert Rapier scoffs at that notion. “Dugan has a clear lack of understanding of market forces,” Rapier said. “The world is much easier to explain if you ignore the underlying complexities. Primitive people could just conjure up gods to explain things they didn’t understand. Dugan conjures up evil oil companies to explain the ups and downs of the oil markets. This may not be surprising, given the qualifications of FTCR staff members: Lawyers and philosophers, political and social scientists. There is no technical expertise on their staff, and this makes it hard to take them seriously when they try to discuss technical topics.”

Inconsistencies in Reporting

Oil Watchdog has a history of inconsistent reporting. They have complained that oil companies are producing a polluting product, but they have also ironically complained that the price is too high, making it more difficult for consumers to afford that polluting product. They have complained that oil companies are greedy, yet they also complained about oil company donations to charities or universities, charging that they are attempting to “greenwash” their image.

They have complained when gas prices rose, but then when gas prices fell they complained that oil companies were trying to influence public opinion. They have complained that oil companies aren’t making biofuels, yet they have also complained that oil companies are making biofuels. They have complained that oil companies fund research into finding more oil, and then again complained that oil companies fund research into alternative fuels. Their history of complaints – regardless of the actions that oil companies are taking – supports the contention that they are merely paving a litigious path for their trial lawyer backers. Perhaps the ultimate irony is that the FTCR demands transparency from politicians, universities, and corporations, yet they refuse to publicly disclose their own source of funding.

Censorship of the Opposition

While Dugan and company have presented themselves as knowledgeable about the inner workings of the oil industry, their actions tell a different story. When Oil Watchdog was launched, readers were encouraged to comment following the essays that were published. However, as technical challenges to points were raised, Dugan started hiding comments by default. Shortly thereafter, she attached the following label to each of her critics: “This commentor has been flagged as a suspected shill for BigOil. You can view the history of their comments by clicking on the user’s screen name at the end of this entry.” Finally, they simply started locking comments after most stories. It is as if they are saying “It is better for us if it looks like we are open to comments, but we simply don’t have the technical expertise on staff to address them.”

Oil Watchdog’s Future

Oil Watchdog could evolve into a legitimate consumer organization, but they are going to have to change tactics. Presenting themselves as “watchdogs,” while showing a juvenile grasp of the oil industry, does not serve consumers. If they spent some time trying to understand how the world oil markets work, and showed some balance in reporting, over time they could rebuild their lost credibility. Time will tell if the interests of consumers win out over deceptive journalism designed to reward Oil Watchdog’s backers.

November 14, 2007 Posted by | FTCR, Jamie Court, Judy Dugan, oil watchdog | 11 Comments

Who’s Watching Oil Watchdog?

NEWS RELEASE

November 14, 2007

“Consumer Advocacy” Group Under Investigation

Group Charged with Deceptive Journalism and Misrepresentation

Santa Monica, CA — Judy Dugan, Research Director for the Foundation for Taxpayer and Consumer Rights (FTCR), again finds herself defending against allegations of misconduct. Dugan is being investigated for consistent misleading press releases originating from the FTCR’s Oil Watchdog project. Oil Watchdog ostensibly exists to protect consumers from rising oil and gas prices. However, an investigation has revealed that the organization is actually funded by trial lawyers, and that the misleading information promoted by Dugan’s organizations is aimed at stirring anger toward corporate interests. Dugan, who could not be reached for comment on these allegations, clearly understands that angry consumers are litigious consumers.

Factual Errors

Dugan’s outlandish claims consistently undermine the credibility of both Oil Watchdog and FTCR. For instance, in a recent Oil Watchdog press release, Dugan claimed that “oil companies are reaping profits of up to $75 a barrel on $95-a-barrel oil.” Such a notion is preposterous, notes Dugan’s critics.

For Western firms, it can cost as little as $5 to $7 a barrel to pump the most easily accessible oil from places like Venezuela or Azerbaijan,” said Fadel Gheit, a senior energy analyst at Oppenheimer. “The costs don’t stop there. On top of the $5-$7 production costs, there’s also the money it took to build the pumping facility. At several billion dollars a pop, capital costs typically add another $5 to $7 a barrel. And that’s the cost of producing oil in the cheapest regions of the world. Factor in expensive fields like the deep water Gulf of Mexico, the tar sands of Canada or water-laden output of Texas, and the average production and capital cost is somewhere in the low teens to mid $20s,” said Gheit.

Still not bad, considering the selling price. Enter government. Gheit said taxes and royalty payments can range from 40 percent of profits in places like the United States to 90 percent or more in places like Russia or Libya. “It’s a very complex equation,” he said of trying to figure out just how much it costs oil companies to produce oil.

A very complex equation? Not according to Dugan, who assures readers that oil and gas prices are not dictated by market forces, but instead by the profit levels oil companies wish to make. Dugan claims that oil and gas prices are easily manipulated, and if there is an energy bill being debated or an upcoming election, oil companies simply drop prices in a direct attempt to hijack the political process.

Frequent Dugan critic Robert Rapier scoffs at that notion. “Dugan has a clear lack of understanding of market forces,” Rapier said. “The world is much easier to explain if you ignore the underlying complexities. Primitive people could just conjure up gods to explain things they didn’t understand. Dugan conjures up evil oil companies to explain the ups and downs of the oil markets. This may not be surprising, given the qualifications of FTCR staff members: Lawyers and philosophers, political and social scientists. There is no technical expertise on their staff, and this makes it hard to take them seriously when they try to discuss technical topics.”

Inconsistencies in Reporting

Oil Watchdog has a history of inconsistent reporting. They have complained that oil companies are producing a polluting product, but they have also ironically complained that the price is too high, making it more difficult for consumers to afford that polluting product. They have complained that oil companies are greedy, yet they also complained about oil company donations to charities or universities, charging that they are attempting to “greenwash” their image.

They have complained when gas prices rose, but then when gas prices fell they complained that oil companies were trying to influence public opinion. They have complained that oil companies aren’t making biofuels, yet they have also complained that oil companies are making biofuels. They have complained that oil companies fund research into finding more oil, and then again complained that oil companies fund research into alternative fuels. Their history of complaints – regardless of the actions that oil companies are taking – supports the contention that they are merely paving a litigious path for their trial lawyer backers. Perhaps the ultimate irony is that the FTCR demands transparency from politicians, universities, and corporations, yet they refuse to publicly disclose their own source of funding.

Censorship of the Opposition

While Dugan and company have presented themselves as knowledgeable about the inner workings of the oil industry, their actions tell a different story. When Oil Watchdog was launched, readers were encouraged to comment following the essays that were published. However, as technical challenges to points were raised, Dugan started hiding comments by default. Shortly thereafter, she attached the following label to each of her critics: “This commentor has been flagged as a suspected shill for BigOil. You can view the history of their comments by clicking on the user’s screen name at the end of this entry.” Finally, they simply started locking comments after most stories. It is as if they are saying “It is better for us if it looks like we are open to comments, but we simply don’t have the technical expertise on staff to address them.”

Oil Watchdog’s Future

Oil Watchdog could evolve into a legitimate consumer organization, but they are going to have to change tactics. Presenting themselves as “watchdogs,” while showing a juvenile grasp of the oil industry, does not serve consumers. If they spent some time trying to understand how the world oil markets work, and showed some balance in reporting, over time they could rebuild their lost credibility. Time will tell if the interests of consumers win out over deceptive journalism designed to reward Oil Watchdog’s backers.

November 14, 2007 Posted by | FTCR, Jamie Court, Judy Dugan, oil watchdog | Comments Off on Who’s Watching Oil Watchdog?

Who’s Watching Oil Watchdog?

NEWS RELEASE

November 14, 2007

“Consumer Advocacy” Group Under Investigation

Group Charged with Deceptive Journalism and Misrepresentation

Santa Monica, CA — Judy Dugan, Research Director for the Foundation for Taxpayer and Consumer Rights (FTCR), again finds herself defending against allegations of misconduct. Dugan is being investigated for consistent misleading press releases originating from the FTCR’s Oil Watchdog project. Oil Watchdog ostensibly exists to protect consumers from rising oil and gas prices. However, an investigation has revealed that the organization is actually funded by trial lawyers, and that the misleading information promoted by Dugan’s organizations is aimed at stirring anger toward corporate interests. Dugan, who could not be reached for comment on these allegations, clearly understands that angry consumers are litigious consumers.

Factual Errors

Dugan’s outlandish claims consistently undermine the credibility of both Oil Watchdog and FTCR. For instance, in a recent Oil Watchdog press release, Dugan claimed that “oil companies are reaping profits of up to $75 a barrel on $95-a-barrel oil.” Such a notion is preposterous, notes Dugan’s critics.

For Western firms, it can cost as little as $5 to $7 a barrel to pump the most easily accessible oil from places like Venezuela or Azerbaijan,” said Fadel Gheit, a senior energy analyst at Oppenheimer. “The costs don’t stop there. On top of the $5-$7 production costs, there’s also the money it took to build the pumping facility. At several billion dollars a pop, capital costs typically add another $5 to $7 a barrel. And that’s the cost of producing oil in the cheapest regions of the world. Factor in expensive fields like the deep water Gulf of Mexico, the tar sands of Canada or water-laden output of Texas, and the average production and capital cost is somewhere in the low teens to mid $20s,” said Gheit.

Still not bad, considering the selling price. Enter government. Gheit said taxes and royalty payments can range from 40 percent of profits in places like the United States to 90 percent or more in places like Russia or Libya. “It’s a very complex equation,” he said of trying to figure out just how much it costs oil companies to produce oil.

A very complex equation? Not according to Dugan, who assures readers that oil and gas prices are not dictated by market forces, but instead by the profit levels oil companies wish to make. Dugan claims that oil and gas prices are easily manipulated, and if there is an energy bill being debated or an upcoming election, oil companies simply drop prices in a direct attempt to hijack the political process.

Frequent Dugan critic Robert Rapier scoffs at that notion. “Dugan has a clear lack of understanding of market forces,” Rapier said. “The world is much easier to explain if you ignore the underlying complexities. Primitive people could just conjure up gods to explain things they didn’t understand. Dugan conjures up evil oil companies to explain the ups and downs of the oil markets. This may not be surprising, given the qualifications of FTCR staff members: Lawyers and philosophers, political and social scientists. There is no technical expertise on their staff, and this makes it hard to take them seriously when they try to discuss technical topics.”

Inconsistencies in Reporting

Oil Watchdog has a history of inconsistent reporting. They have complained that oil companies are producing a polluting product, but they have also ironically complained that the price is too high, making it more difficult for consumers to afford that polluting product. They have complained that oil companies are greedy, yet they also complained about oil company donations to charities or universities, charging that they are attempting to “greenwash” their image.

They have complained when gas prices rose, but then when gas prices fell they complained that oil companies were trying to influence public opinion. They have complained that oil companies aren’t making biofuels, yet they have also complained that oil companies are making biofuels. They have complained that oil companies fund research into finding more oil, and then again complained that oil companies fund research into alternative fuels. Their history of complaints – regardless of the actions that oil companies are taking – supports the contention that they are merely paving a litigious path for their trial lawyer backers. Perhaps the ultimate irony is that the FTCR demands transparency from politicians, universities, and corporations, yet they refuse to publicly disclose their own source of funding.

Censorship of the Opposition

While Dugan and company have presented themselves as knowledgeable about the inner workings of the oil industry, their actions tell a different story. When Oil Watchdog was launched, readers were encouraged to comment following the essays that were published. However, as technical challenges to points were raised, Dugan started hiding comments by default. Shortly thereafter, she attached the following label to each of her critics: “This commentor has been flagged as a suspected shill for BigOil. You can view the history of their comments by clicking on the user’s screen name at the end of this entry.” Finally, they simply started locking comments after most stories. It is as if they are saying “It is better for us if it looks like we are open to comments, but we simply don’t have the technical expertise on staff to address them.”

Oil Watchdog’s Future

Oil Watchdog could evolve into a legitimate consumer organization, but they are going to have to change tactics. Presenting themselves as “watchdogs,” while showing a juvenile grasp of the oil industry, does not serve consumers. If they spent some time trying to understand how the world oil markets work, and showed some balance in reporting, over time they could rebuild their lost credibility. Time will tell if the interests of consumers win out over deceptive journalism designed to reward Oil Watchdog’s backers.

November 14, 2007 Posted by | FTCR, Jamie Court, Judy Dugan, oil watchdog | Comments Off on Who’s Watching Oil Watchdog?